Kansas energy lawyer presses for inquiry of potential market manipulation in 2021 cold snap

KCC argues it has no authority to investigate unregulated natural gas market

By: - November 7, 2022 8:23 am
Jim Zakoura, an energy lawyer frustrated by the Kansas Corporation Commission's refusal to investigate possible natural gas market manipulation in the 2021 winter storm, participates in a Kansas Reflector podcast to discuss an order requiring residential customers to cover $622 million in extraordinary costs incurred by utility companies during a storm named Uri. (Sherman Smith/Kansas Reflector)

Jim Zakoura, an energy lawyer frustrated by the Kansas Corporation Commission’s refusal to investigate possible natural gas market manipulation in the 2021 winter storm, participates in a Kansas Reflector podcast to discuss an order requiring residential customers to cover $622 million in extraordinary costs incurred by utility companies during a storm named Uri. (Sherman Smith/Kansas Reflector)

TOPEKA — The Kansas Corporation Commission issued orders requiring retail residential ratepayers to bear the brunt of $622 million in extraordinary costs absorbed by public utilities to buy natural gas during a brutal cold snap in February 2021.

The three-member KCC didn’t require utility companies to eat costs associated with a winter storm given the name Uri. There was no negotiation for price breaks on behalf of residential customers, despite private commercial deals reducing by 25% or more their payments tied to the weather.

Nor did the commission launch its own investigation into the mystery of what transpired when natural gas prices surged during a crucial seven-day period.

Jim Zakoura, an energy attorney and president of Kansas Industrial Consumers Group, said he was convinced the pricing of natural gas during the Uri storm didn’t reflect free market forces of supply and demand. State or federal officials have an obligation to explain what really happened to all the retail customers bearing the burden over the next two years to 10 years of costs incurred by utility companies, he said.

“There were indications throughout this period that the pricing was not accurate. I don’t want to say it was unlawful,” Zakoura said.

His central question: How did the price index for natural gas in Kansas move from $2.54 per unit on Feb. 1, peak at $622.78 per unit on Feb. 17 and plummet to $2.46 per unit by Feb. 28?

He said during the Kansas Reflector podcast the lack of a reasonable explanation of what transpired at the wholesale and retail levels should worry consumers because nothing has been done to shield them from price shocks in future storms.

 

It’s extraordinary

During the 2021 storm, the KCC ordered regulated utilities to do everything possible to sustain natural gas service to customers, to defer billing for price spikes and to develop a long term plan allowing customers to pay the unusually high costs over time to minimize the financial impact. The commission said it was in the public interest for utility companies serving Kansans to temporarily incur the extraordinary costs to ensure integrity of the gas system.

All three of the KCC’s members appointed by Gov. Laura Kelly said the obligation of consumers to pay the extra fees from the storm was an unpleasant reality. They said the commission couldn’t regulate wholesale natural gas because Congress deregulated pricing in the 1980s.

“These extraordinary costs are not profits or money flowing to our utilities,” said KCC commissioner Andrew French. “These are associated with the cost of procuring a wholesale, unregulated commodity product and that is a cost that unfortunately has to be passed on to the customer.”

French said the KCC had taken every step available to minimize the additional natural gas costs to customers in response to the storm.

He said the commission put in place a structure requiring proceeds recovered by utility companies from state or federal investigations of possible market manipulation or price gouging would be passed to customers. In February, the Kansas House approved a resolution urging the Federal Energy Regulatory Commission and Kansas Attorney General Derek Schmidt to investigate potential market manipulation. The Kansas Senate didn’t vote on the measure.

In August, Commissioner Susan Duffy said inquiries by FERC and the attorney general what could be viewed as “nefarious activity” were still active.

“I firmly believe storm Uri was not a one-off event,” Duffy said. “There will be other storm Uris to follow. The bottom line is we learned a lot from this one and hopefully we’ll be much better prepared and will have a better understanding of the costs involved.”

Commission chairman Dwight Keen said he appreciated the 2021 Legislature’s passage of a bill signed by the governor allowing utilities to use customer-backed bonds to deal with extraordinary costs under more favorable terms than traditional financing.

The KCC approved bond agreements with Kansas Gas Service and Atmos Energy. KGS will issue $328 million in low-interest bonds, while Atmos will issue $92 million in bonds. In the case of KGS, for example, ratepayers were expected to save $35 million to $46 million through the bonding strategy.

“It is cold comfort. It is mitigation to prevent a worse alternative,” Keen said. “This is the aftermath. This is the consequence of winter storm Uri.”

 

More work to do

Zakoura said he disagreed with the KCC’s position that it couldn’t independently study whether market manipulation was a factor in the natural gas price surge nearly two years ago.

He said he was turning his attention to litigating a case in which “wonderful, courageous” residents in the city of Mulberry in Crawford County refused to pay BP Energy storm-era charges for natural gas of $300 per unit. His clients filed a lawsuit based on the state’s anti-profiteering statute.

Under the law, Zakoura said, no supplier was allowed to increase charges more than 25% above the trading price prior to the declaration of an emergency by a governor. Kelly issued such a declaration on Feb. 14 in the midst of the natural gas crisis.

“That would reduce the prices that would be permitted under Kansas law probably by at least 75% during this period of time, which would be a great, great benefit to the residential ratepayers throughout the state,” Zakoura said. “The Kansas state law designed precisely for what occurred here will save Kansans hundreds of millions of dollars.”

In addition, he said companies involved with supplying Kansas with natural gas ought to expand physical storage so gas could be bought at non-emergency rates. He said the KCC should urge electric and gas utilities operating in the state to work collaboratively on acquisition of gas during weather emergencies.

“When they don’t work together, it has a very high probability of increasing the prices for everyone,” he said.

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Tim Carpenter
Tim Carpenter

Tim Carpenter has reported on Kansas for 35 years. He covered the Capitol for 16 years at the Topeka Capital-Journal and previously worked for the Lawrence Journal-World and United Press International. He has been recognized for investigative reporting on Kansas government and politics. He won the Kansas Press Association's Victor Murdock Award six times. The William Allen White Foundation honored him four times with its Burton Marvin News Enterprise Award. The Kansas City Press Club twice presented him its Journalist of the Year Award and more recently its Lifetime Achievement Award. He earned an agriculture degree at Kansas State University and grew up on a small dairy and beef cattle farm in Missouri. He is an amateur woodworker and drives Studebaker cars.

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